In a rising rate regime, banks & NBFCs will suffer: Rajat Sharma

"I do expect overall markets to fall and that is the only reason why I have not really dived deep into stocks should be looked at for buying. But as a sector I have always liked cement. I understand it, I have looked at it but these days I am avoiding most of these stocks,” says Rajat Sharma, Founder & CEO, Sana Securities

ET Now: What is the outlook on NBFCs? A lot of brokerages seem to be of the view that we are likely to see things smoothen out and recovery kick in?

Rajat Sharma: I will have to differ from that view and say that due to rising interest rate cycle, financials and NBFCs will suffer because there will be intense margin pressure. In fact,in the case of NBFCs like Bajaj Finance and other stocks which have run up a lot in the last two-three years, have come up with unique accounting policies --whether it is reclassifying loans, flexi loans and sort of brushing everything under the carpet.

As interest rates rise and inflation does not get controlled, people whose EMIs are going higher, who are struggling to pay those EMIs already, will start defaulting. We have operated in a very benign interest rate environment for far too long. It is simply not possible that there will never be any pain in the banking sector. In the two-three years of Covid, all sort of provisioning went away and NPAs improved. It just is not possible that a pandemic can do all of that. The reason things are good is interest rates are low and everyone could service the loans.


The government allowed moratorium a couple of times. Everything was postponed. At some point, this will have to be accounted for. Some money will go back. I do not know which companies will struggle more but overall; the entire financial services will probably struggle. I am mindful of the fact that financial services, in the last three-four years, have not really outperformed. Pharma outperformed two-three years back and IT outperformed. The outperformance of financial services is yet to come but I do not think that is going to happen in a hurry. So, if I talk about the next one year, we will see financial services and particularly NBFCs struggling.

ET Now: It has been quite painful for the entire cement basket, is it an avoid for now?

Rajat Sharma: I expect the volumes to pick up in the cement space because a lot of people have deferred their decisions to do home construction and renovations. A lot of cement stocks get a lot of their consumption in rural areas. In fact, I think 60-70% of cement consumption for listed players happens in the rural area. So, the volumes will pick up for sure.

I am not sure whether the stock prices will go in line with an increase in volumes. The reason is because, there will be margin pressures and the stocks must run up a lot. So when the overall markets fall, I do not expect anything significant to happen here. So this is one sector I would look out for. I would like to add about stocks here but I would like to see how the market behaves in the next three-five months, I do expect overall markets to fall that is the only reason why I have not really dived deep into which stocks should be considered for buying. But as a sector I have always liked cement but these days I am avoiding most of these stocks.